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Google Inc. Targets Emerging Markets With Android One

Google (NASDAQ: GOOG) has launched the Android One platform to attract new users to Google's Android OS and bolster market share in untapped markets. Android One enables manufacturers to build high quality affordable smartphones on Google's stock Android OS software. Microsoft (NASDAQ: MSFT) follows behind with its own cost competitive line of Nokia devices for emerging markets. But Apple (NASDAQ: AAPL) looks to stay in the premium business with its new iPhone 6 handsets.

Android OneGoogle is working with partners globally to bring Android One to market, but it will launch the platform in India first this fall. Smartphone shipments in India surpassed 44 million units last year, up 172% from 16.2 million units in 2012. India is the third largest smartphone market behind the United States and China. Growth in the Indian smartphone market stems from the release of low-priced, cost competitive devices from Samsung and local vendors Micromax and Karbonn.

The blue dots show the number of people without a smartphone. Source: Google.

Although India sports a large mobile market, less than 10% of the population has access to smartphones, Sundar Pichai, Google's SVP of Android, Chrome & Apps said at Google's IO conference. Indian smartphone makers Micromax, Karbonn, and Spice will be among the first OEMs to launch sub-$100 smartphones under the Android One umbrella. Google will work with carriers to provide affordable plans for customers using these devices.

Google recognizes that future growth lies in key emerging markets where smartphone adoption lags because of continued feature phone support. Google wants to reach the next 5 billion people that do not own a smartphone, Pichai said. For Google to penetrate these markets, the company not only needs to narrow the pricing gap, but foster innovation to stand out beyond price to attract feature phone users.

Microsoft acquired Nokia's devices and services business earlier this year to strengthen the Windows Phone platform. Nokia offers an extensive product portfolio of affordable entry-level smartphones for growing economies and high-end models for mature markets. Microsoft recently revealed the Nokia X2, the newest addition to the growing Nokia X line of budget smartphones aimed at the "next billion" in developing markets.

Microsoft's initiative to target emerging markets through a strong line-up of budget smart devices such as Nokia X, Nokia X+, Nokia XL, Asha, and Lumia could help the company boost its market presence to 6.4% by 2018. The X family of devices run on Android, but are stripped of Google services and replaced with Microsoft's lucrative services such as Bing, Outlook, OneDrive, and Skype.

Apple has been criticized for not producing a low-cost iPhone to its product portfolio for emerging markets. Although Apple lacks presence in those markets, iPhone sales reached $91 billion last year, driven by improved sales in China, Japan, and Europe. Apple uses earlier iPhone models, such as the mid-range iPhone 4S to penetrate developing markets.

But Apple may struggle to drive growth if the company does not offer lower-priced alternatives. Cheaper brands running on Android and Windows Phone could replace Apple in emerging markets, adding to the possibility of its overall market share to deteriorate from an estimated 14.8% this year to 13.7% in 2018.

"Apple continues to be strong in mature markets, where devices are heavily subsidized, but emerging markets are expected to drive overall market growth, and appetite for smartphones in these markets is at the sub-$200 level, significantly below Apple's selling prices," IDC said in the report.

Bottom lineGoogle's Android One initiative seeks to push emerging markets to Android and its profitable services. Microsoft's ongoing strategy is to lure Android users toward Microsoft services using a reskinned version of the Android OS without users buying a Windows PC. If more OEMs support the Windows Phone platform in various pricing segments, Microsoft could gain momentum and drive growth away from Google and Apple. Premium brands like Apple could struggle to gain a major foothold in emerging economies.

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